Economics chapter 1,2

What is Economics?

The study of choices and their consequences.

Scarcity

Resources are limited, so choices must be made.

Microeconomics

Focuses on individuals and businesses.

Macroeconomics

Focuses on the economy as a whole.

Factors of Production

Land, Labour, Capital, and Entrepreneurship.

Land

Natural resources used in production.

Labour

Human work and skills.

Capital

Tools, machines, and buildings used in production.

Entrepreneurship

Organizes land, labour, and capital to create businesses.

Income Distribution

How income is divided among factors of production.

Self-interest

Decisions made for personal benefit.

Social interest

Decisions that benefit society.

Opportunity cost

The value of the next best alternative.

Trade-off

Giving up one thing to get another.

Marginal cost

Cost of producing one more unit.

Marginal benefit

Benefit from consuming one more unit.

Allocative efficiency

When marginal cost equals marginal benefit.

Economic growth

Shifts the PPF outward through technological advancements and capital accumulation.

Comparative advantage

Producing a good at a lower opportunity cost.

Absolute advantage

Producing more of a good than others.

Production Possibilities Frontier (PPF)

Shows the possible combinations of goods an economy can produce.

Incentives

Rewards or penalties that influence choices.

Economic Coordination

How firms, markets, property rights, and money work together in the economy.